CBO: Debt will reach 200% of economy by 2037 as health spending rises

June 06, 2012

Rising health care spending will contribute to the U.S. debt reaching 200% of the country's gross domestic product (GDP) by 2037, according to a long-term budget outlook included in a new Congressional Budget Office (CBO) report.

Overall debt predictions

The report notes that if lawmakers do nothing to address rising entitlement spending, public debt would reach 109% of GDP by 2026 and nearly 200% of GDP by 2037.

In another scenario factoring in automatic cuts to Medicare physician reimbursement rates, public debt would drop from 73% of GDP this year to 61% by 2022 and 53% by 2037. That scenario is considered less likely.

Health care spending predictions

According to the report, health care entitlement spending is a significant contributor to the debt increase. CBO predicts that such spending will increase from 5% of the country's GDP currently to 10% in 2037.

It also notes that health care spending as a percentage of GDP has risen from 4.7% in 1960 to 16.8% in 2010, the most recent year for which such data is available.

Although the report estimates that spending growth in Medicare, Medicaid, and the private sector will slow even without changes in federal law— because of "reactions to cost pressures" that will result in providers using "cost-reducing technologies" and increasing efficiency— it also estimates that such spending in relation to GDP will continue to grow.

Federal spending on Medicare and Medicaid increased from 2.2% of GDP in 1985 to 5.6% in 2011. In the meantime, health spending per U.S. resident outpaced the nation's economy by 1.6 percentage points annually over the previous 25 years. The report states that, if such growth rates continue, "total spending on health care would eventually account for all of the country's economic output—an impossible outcome."

According to the report, "the explosive path of federal debt ... underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course."

However, the report warns that health spending growth "relative to the growth of the economy has varied greatly from year to year during the past several decades, so projections of the difference in growth rates during the next few decades are very uncertain” (Wasson, "On The Money," The Hill, 6/5; Daly, Modern Healthcare, 6/5 [subscription required]).

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